Trading constraints and illiquidity discounts

Illiquidity, Portfolio Constraints, and Diversification *

Higher Order Expectations, Illiquidity, and Short-term Trading

We propose a theory that jointly accounts for an asset illiquidity and for the asset price potential over-reliance on public information. We argue that, when trading frequencies differ across traders, asset prices reflect investors’ Higher Order Expectations (HOEs) about the two factors that influence the aggregate demand: fundamentals information and liquidity trades. We show that it is precis...

Resilient price impact of trading and the cost of illiquidity

We construct a model for liquidity risk and price impacts in a limit order book setting, and derive a wealth equation and a characterization of illiquidity costs for liquidity providers. The model has desirable stylized facts justified by empirical studies and contains all three components identified by Kyle (1985). We give conditions under which the model is arbitrage free. By considering the ...

Closed-end Fund Discounts and Individual Investor Trading

This paper investigates the individual investor trading in both closed-end funds and individual stocks. By examining the short-horizon dynamic relation between net individual investor trading of closed-end funds and the fund discounts, we find evidence consistent with the notion that both the level and the changes in close-end fund discounts are good proxies for individual investor sentiment. U...

Premiums, Discounts and Feedback Trading: Evidence from Emerging Markets’ ETFs

This study investigates the extent to which ETFs’ premiums and discounts motivate feedback trading in emerging markets’ ETFs. Using a sample of the first-ever launched broad-index ETFs from four emerging markets (Brazil, India, South Africa and South Korea), we produce evidence denoting that feedback trading grows in significance in the presence of lagged premiums. The significance of feedback ...